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Re: st: two-way error component model


From   Mark Schaffer <M.E.Schaffer@hw.ac.uk>
To   statalist@hsphsun2.harvard.edu, Svetlana Mira <svetlanam@Cardiff.ac.uk>
Subject   Re: st: two-way error component model
Date   Thu, 24 Feb 2005 19:53:15 +0000 (GMT)

Svetlana,

Quoting Svetlana Mira  <svetlanam@Cardiff.ac.uk>:

> Dear All,
> 
> I have a problem understanding how Stata computes the results for a
> two-way error component model (xi: reg y i.idfirm i.idtime x1) and
> hopefully somebody will be able to help me with this. In the case of
> a fixed effects model, we can obtain the results in Stata either by
> using xtreg, areg or simply based on the demeaned values using 
> regress option. Can we apply the last option (demeaning) for the two-
> way error component model? (i.e., can we run a two-way error 
> component model based on the mean differences)? If so, what means 
> shall we extract?
>  
> For instance, if we run xi: reg y i.idfirm i.idtime x1 the obtained
> 
> results are not equal to the results based on 
> 
> regress y x2, where x2=x1-x(meanidfirm)-x(meanidtime)      
> 
> Or as suggested by Green (1997)
> 
> regress y x3, where x3=x1-x(meanidfirm)-x(meanidtime) + x(firm-year
> specific mean).

I am pretty sure that if you check Greene, you'll find that this is the
formula for obtaining the 2-way error components estimate for a balanced
panel using mean deviations.  If the panel is unbalanced, the mean-deviation
approach requires calculations that are somewhat more involved.  Baltagi's
book "Econometric Analysis of Panel Data" has a discussion of this.

Hope this helps.

Cheers,
Mark

> Does Stata use a specific procedure to run a two-way error component
> model different from the ones mentioned above? Any suggestions or 
> comments are more than appreciated.
> 
> Many thanks for your help, 
> Svetlana
> 
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> 



Prof. Mark Schaffer
Director, CERT
Department of Economics
School of Management & Languages
Heriot-Watt University, Edinburgh EH14 4AS
tel +44-131-451-3494 / fax +44-131-451-3294
email: m.e.schaffer@hw.ac.uk
web: http://www.sml.hw.ac.uk/ecomes

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